I’ve talked about related topics before (most recently in Signs of a High-Quality Advisor), but I want to come at this from a different angle.
This will start with substance and end with marketing. Both are important, I think.
First, I was thinking about what attributes a high-quality (by which I mean they do an excellent job) financial planning/wealth management firm must have. I think there are three:
- Technical excellence (including good judgement) – more than the CFP® body of knowledge (which is just entry level)
- Extremely caring – either caring about doing a good job, or caring about the clients personally, or (even better) both
- Operational excellence – ability to get things done in a timely and error-free manner
Let me explain those a little further. If any one of those items is missing, the quality is a fail. For example, suppose the question is whether a client should do a Roth conversion or not (and how much):
- An advisor/firm cares about the clients and can fill out conversion paperwork perfectly, but doesn’t know when a Roth conversion would be appropriate (technical issue) or assumes a liberal is going to win the next election and double tax rates so recommends converting 100% this year even though it puts the client into a much higher tax bracket (judgement issue) – FAIL for lack of technical competence.
- An advisor/firm knows exactly what should be done and is capable of doing it perfectly, but it seems like a lot of work and the client won’t know, so blows it off – FAIL for lack of caring.
- An advisor/firm knows exactly what should be done and cares about doing it, but is so disorganized the paperwork got misplaced, and then it turns out it was filled out wrong, and they forgot they would need a signature, and then it was the next calendar year so they missed a conversion opportunity at lower rates – FAIL for lack of operational competence.
The intersection of all three areas in the Venn diagram is the sweet spot.
Second, let me come to the marketing portion of this. In biology there is a concept of signaling. You can be very fit, but your genetic survival won’t be very good if no one knows you are fit. In other words, you can be a self-made multi-millionaire (economic fitness), but if everyone thinks you are broke you still might not have a boyfriend/girlfriend (and your genes don’t get propagated) unless you have some credible way of signaling your wealth. (I’m not suggesting that net worth is the only or even best definition of fitness, it’s just an easy example to use.)
A problem is that people fake fitness. For example, keeping with our economic example, they buy counterfeit name brands, ape a lifestyle they actually can’t afford (hello, fake Instagram life). So what signals fitness are things that are very easy for fit (in whatever domain) folks to do but very difficult for others to do. For example, if someone is very smart, then getting advanced degrees is easy (well, easier) than for someone who is dumb. So a graduate degree from an Ivy is a very good indicator of intelligence. An unintelligent person can’t fake that signal.
Let’s take this to the advisory realm. I’ve known advisors, as I’m sure you have as well, who talked a great game on the three items above. They could spout MPT terminology (but didn’t actually know what they were talking about), talked about how much they cared for their clients (but called them muppets behind their backs), and tried to look like they were very organized (but really weren’t).
So what credible (hard to fake) fitness signals on these three areas can we send to help clients recognize our excellence? In other words, items that are relatively easy for those with the actual skills, but difficult for others to fake:
- Technical signals:
- Quality credentials (CFP, CFA, etc.)
- Writing analysis on a blog or newsletter (original, not purchased, content)
- Speaking to professional groups (not dinner seminars of lay people)
- Caring signals:
- Frequent and meaningful conversations with clients (if you really don’t care about them this is hard to do over extended periods of time)
- Remembering details about their lives (CRM can help fake this to some extent, but going deeper than just knowing the children’s names is a credible signal)
- Sending thoughtful gifts or notes at opportune times (if you care then you both know what is going on with them and what would be meaningful to them)
- Operational signals:
- Error-free paperwork
- Fast responses to phone calls and emails
- Timely reminders to do RMDs, conversions, retirement plan contributions, etc.
- Consistent follow-ups (friendly nags) to complete estate planning, get insurance coverage, change employee benefit elections, etc.
We are blessed at our firm that while we all care about each area and have multiple competencies, we have one person who really excels in each domain. (As I’m sure you would guess, I’m technical, Anitha is caring, Kaitlyn is operational. That doesn’t mean that Kaitlyn and I don’t care, or that Anitha isn’t technically competent, etc. but we each stand out in our strengths.)